Sterling gained ground this week over the US Dollar by 4%, but this was not due to Sterling strengthening, but more to do with the US Dollar weakening. The US Dollar weakened against the Euro and the Australian Dollar by 5% this week, whereas Sterling lost 2% against the Euro and 1% against the Australian Dollar.

The price of oil jumped this week by a massive 15% ending the week at a recent high of $52.82 per barrel. Also, investors again seek safety in gold with the price per ounce rising by 3% on the week.

End of the week saw:
Stock exchanges:
FTSE 100: 3,843
DOW: 7,278
S&P: 768.54
Nikkei: 7,946

Currencies
UK Sterling £ to US Dollar $ 1.44776
UK Sterling £ to Euro € 1.06158
UK Sterling £ to Japanese Yen 138.620
UK Sterling £ to Aus $ 2.09244
US Dollar $ to Euro € 0.733372
US Dollar $ to Japanese Yen 95.7632
US Dollar $ to Aus $ 1.44600

Commodities
Nymex Crude oil – $52.82
Gold – $954.20

Sterling has dropped to the following rates:

One UK Pound will get you just $1.37 in the USA – this is great for the travelling American so they can come to visit our shops like we did when the rate hit over $2 to the Pound!

One UK Pound will get you €1.06 – which is not quite as low as it has been, but it is still very low and will likely give you a par exchange at the airports when you are travelling abroad.

One UK Pound will translate to Australian $2.10 – for those of you that are travelling further afield!

One UK pound gets Japnese Yen 121.77 – Which is not good for Japan exporting cars to the UK and this will put pressure on these car manfacturers!

From a business perspective this is good for companies that export to other countries and especially to the US and Europe, because our goods become so much cheap cheaper (up to 35% cheaper in the USA from the Sterling high last year) to those countries where we export.

However, where companies are heavily dependent upon imports, then where these come from within the Eurozone and from the USA, their costs will have risen sharply and of course could force them to either put up their prices or could force them out of business all together! Where prices are forced up, this could put pressure on inflation within the UK, which is the last thing we need right now!

Early 2009 will be interesting for the retail industry, as we see another high street chain “Adams” go into administration. All the stores have been discounting heavily even before the January sales so that any revenue they made leading up to Christmas would lead to reduced profits and lower bank balances than normal.

This week Zavvi was placed into administration, a retailer that was heavily dependent upon Woolworths. Woolworths has been in administration for a number of weeks now, which has had a bad knock-on effect on Zavvi and this will result in the loss of over 3,000 jobs if a buyer is not found. Zavvi sells music, DVD’s and games and was a result of a management buy-out of Virgin Mega Stores in 2007.

Oil falls to another low

This week saw oil drop to below $40 a barrel and ended up at $37.80 at the end of the week. With more bad data coming out of the US with house sales at an 18-year low, commodity traders are worried that demand will continue to fall, which has pushed the price down lower.

Car-industry woes

Toyota has seen its first loss in 71 year , with the Yen has been strengthening recently and with the world economic slow-down Toyota finds itself in an unusual position with demand for its cars falling, it is expected to report a loss of 150 billion Yen (£1.13 billion). To compare Toyota reported a profit of 2.27 trillion Yen (£17.13 billion), which puts things into perspective. Sales of Toyota cars fell by over 20% in November over the same period last year, dropping to sales of 618,000.

Sterling continues its weakening trend

This week I reported a low of just over €1.05 per pound, but the Euro has ended the week even lower at just under €1.05. We are now very close to a one to one rate and the Euro has fallen by 20% since September this year.

Sterling fall is a life-saver for UK economy, The sharp slide in the pound has been a godsend for the UK economy and may have helped Britain avert a much more serious crisis, according to the German bank Dresdner Kleinwort. – as reported by Ambrose Evans-Pritchard of the Telegraph.

Well I would like to close this weeks round up by wishing everyone a Happy New Year and that they have a Prosperous 2009 – why not vote now in our Forum Poll on The Financial Crisis.

End of the week saw:
Stock exchanges:
FTSE 100: 4,217
DOW: 8,516
S&P: 873
Nikkei: 8,740

Currencies
UK Sterling £ to US Dollar $ 1.47591
UK Sterling £ to Euro € 1.04976
UK Sterling £ to Japanese Yen 133.872
UK Sterling £ to Aus $ 2.16884
US Dollar $ to Euro € 0.711265
US Dollar $ to Japanese Yen 90.7050

Commodities
Nymex Crude oil – $37.80
Gold – $870.20

The good news for the UK economy on this though is when we see Christmas shoppers from Southern Ireland coming across in their droves to shop in Northern Ireland where shops are offering parity for the Euro. It will also make it cheaper for tourists to come and visit the UK of course, but will obviously make it more expensive for us to travel to Europe.

The lower Euro will also help exporters, as our exports will be that much cheaper, however, the underlying reasons for the fall in Sterling against the Euro are what is more to be worried about. The Government has borrowed heavily to get the country out of the current economic mess and investors are worried that the UK economy will be hit particularly badly and more than most countries over the present financial crisis.

Sterling against the Dollar has fallen over the past two weeks, but not to the same degree and the Euro has strengthened against the US Dollar too, which has not helped Sterling.

In the same week Sterling has strengthened slightly against the US Dollar and Euro and the price of a barrel of oil rose by around $5 representing a 10% gain on the week. Although in a meeting in Egypt this Week Opec President Chakib Khelil left oil production unchanged, leaving any decision for a reduction to be made at their next meeting in December.

Bad news on the high street

One of Britain’s iconic high street chains has gone into liquidation, but there is some light at the end of the tunnel for Woolworths with a rescue bid by Dragons Den entrepreneur Theo Paphitis, who is known for taking over troubled chains and turning them around. Mr Paphitis has turned Rymans and La Senza’s fortunes around in the past so it is no surprise that he is in talks with receivers on this one. The government has also announced this week that is preparing to draw up a list of industries that it is prepared to help through this financial down turn.

Short-term tax reductions with higher taxes in the future

Next week the UK will see a lower VAT rate of 15%, with some shops bringing in the reduction early to entice shoppers to spend more. However, the country will have to pay for these tax reductions and extra spending in the future and in particular the higher rate income earners will be targeted with the introduction of a 45% tax band! Some good news though from across the pond with the US holiday season shopping getting off to a good start, rising 3% over the same time last year.

House prices in England and Wales fall by over 10%

In the year to October fell by just over 10%, with the average house price falling to 2006 levels at £165,529. One of the main causes for the fall is that house sales between May and August this year have dropped by more than 50% as a result of the financial crisis. However, the fall in November has slowed according to the Nationwide to just 0.4% over the fall of 1.3% in October.

Unrest in the world as the slowdown hits

China has already seen unrest amongst redundant workers as the world slowdown has hit China in a big way, with over 50% of toy manufacturers going in to liquidation and as recession bights things are expected to get worse. This week saw 500 workers over turn police cars outside of a toy manufacturer over a pay dispute.

End of the week saw:
Stock exchanges:
FTSE 100: 4,288
DOW: 8,829
S&P: 896
Nikkei: 8,512

Currencies
UK Sterling £ to US Dollar $ 1.53836
UK Sterling £ to Euro € 1.21130
UK Sterling £ to Aus $ 2.34940
US Dollar $ to Euro € 0.78740

Commodities
Nymex Crude oil – $55.00
Gold – $819.00

This week also saw Hong Kong go into recession, with the UK heading for a long and painful recession too. The Pound too a hammering this week against the Dollar falling to a low of just below $1.48 this week. The UK government needs to be careful about how it tackles the present situation and it is not careful, too much borrowing to afford tax cuts and more government spending will cause further falls in the Sterling/Dollar rate. The shadow chancellor, George Osborne, has been criticising the Government and in particular Gordon Brown over his handling of the present situation, which has lead to a warning from Gordon Brown Gordon warning that his actions could lead to a sterling collapse.

So what do we have to look forward to? We have already seen world-wide interest rate cuts and we are to see government spending and tax cuts to help stimulate world economies. This weeks G20 summit has seen world leaders speaking about working together to solve the world financial crisis. The Brazilian President, Luiz Inacio Lula da Silva has voiced his views on the validity of G8 and has said that G20 is much more relevant to the world.

The world leaders at the G20 summit held in Washington have pledged to work together to restore global growth.

We have seen that the G20 leaders have been agreeing on banking reforms to change the financial system to help get the world through this present crisis and to put safety measures in place to prevent the same thing happening again in the future. One way that will help prevent such a situation is to put incentives in place to prevent banks from taking excessive risk.

Mortgage deals low on the ground

The type of deal that used to help first time buyers and others to move home are disappearing fast. Mortgage deals offering a 5% deposit are almost gone altogether and 10% deals are falling fast to around 66 on the market right now, whereas back in February this year were close to 1,200 deals. The other problem that mortgagees face is not having the 1.5% cut being passed on, which is more down to LIBOR being a high rate than base rates.

Pension payment reductions on the cards

AXA have warned about the consequences of people stopping or reducing their pension payments in the face of economic problems, their press release on 15th of November highlights:

“Urgent action needed to prevent £35 billion pension hole”

There are around 1.5 million people planning to stop pension contributions as recession bites and that a two-year pension payment break would cost a 35 year-old man £28,700 from his retirement fund!

The press release comments – “Around half (53%) of those planning a pension break said they were doing so to offset the increased cost of living or to clear debts, with a further 13% blaming increased mortgage payments.”

To see the whole press release click here.

Oil prices down to a low

Oil prices dipped again this week with Brent Crude falling to just over $50 a barrel. Opec are looking to reduce production yet again as we see Iran calling for reduced output as the price of oil drops amid the world economic slowdown. The dramatic falls in the oil barrel price has have major effects on the Russian economy where their economy has become accustomed to high oil prices and with the reduced income has put pressure on their financial systems.

Government support for the car industry

This week also saw the US government in discussion and looking to vote on a bill to pledge $25 billion ($17 billion) to the three major car manufacturers, Ford, Chrysler and General Motors. I am not quite sure whether this is quite what represents a free capital market, but unions of the major car-makers have warned of the dire consequences if any one of the big three went bust.

End of the week saw:
Stock exchanges:
FTSE 100: 4,233
DOW: 8,497
S&P: 873
Nikkei: 8,462

Currencies
UK Sterling £ to US Dollar $ 1.4854
UK Sterling £ to Euro € 1.17167
UK Sterling £ to Aus $ 2.29331
US Dollar $ to Euro € 0.788795

Commodities
Nymex Crude oil – $56.43
Gold – $742.90

Sterling has also fallen against the Euro dropping to €1.17855, representing a record low since its introduction. This is both good and bad news for the UK economy, with exports from the UK becoming cheaper to Americans and Europeans, but the reasons behind the fall being the bad news.

The UK economy is heading for an extremely rough ride and a possible deep recession, with the Bank of England hinting at more base-rate cuts, if needs be, having cut the base-rate to just 3%.

I think the story that made me realise just how bad things are out there is the Volvo story where there order book has plunged by 99.7%, where the truck manufacturer has seen lorry orders drop to 115 over the last three months from 41,970 for the same period last year. When I read this I stood up and made note!

Sterling has taken a pounding this week (no pun intended), as it has seen the biggest falls since 1992 as it has fallen to 1.59129 at the end of the week representing an 8% drop. This will be good news for exporters to the US, as prices of goods leaving the UK will be cheaper and could lead to more sales of British goods, but it is bad news for business and holiday travellers alike.

There is good news on the horizon as we would expect interest rate cuts, I can’t believe the Bank of England has not cut them sooner. It is difficult to understand quite why we still have interest rates at three times that of the US, where the base rate is just 1.5%. Signs are out there that the banks are expecting cuts though, when I received in the post this week an offer from The Bristol & West Building Society of a fixed rate for three years of 5.59% for one of my buy to let mortgages.

Nils Pratley of the Guardian is talking about “deep cuts in interest rates”, let’s hope he is right, especially when we see that retail sales for John Lewis, considered to be the barometer for the state of the high street, have fallen by 7.6%.

Microsoft is bucking the trend, as is The Royal Mail when the US software giant has posted profits and sales figures well above analysts’ expectations. Microsoft made a $4.37 billion profit during the first three months of its financial year, which is up from $4.29bn a year ago and turnover rose 9% to $15.06 billion. The Royal Mail has doubled its operating profits to £177m in the first half of 2008/09 from a year ago, helped by cost cuts and greater efficiency, not bad when the average daily postbag is now 79 million items, which is five million fewer letters than two years ago.

We have another week of big falls in oil prices, this despite the oil cartel Opec cutting output by 1.5 million barrels a day. The price of oil closed at $64.65 per barrel having started the week at $71.75, this is a fall of nearly 10%. Which of course is great news for consumers, petrol prices and provides more downward pressure on inflation. These falls have lead to a price war breaking out between the UK’s top four supermarkets as Asda, Sainsbury’s, Tesco and Morrisons announced cheaper petrol. Asda and Sainsbury’s said they would slash their petrol prices to as low as 94.9p a litre – about time too when you consider this latest fall in oil price represents a fall of nearly 56%.

It’s good to see Brazil doing well, which is one of the BRIC economies (Brazil, Russia, Indian and China, the worlds fastest growing economies). Although the Brazilian stock market, the Bovespa in São Paulo, has recently fallen by around 20%, it is still up by around 5% from the level it was at last year. This compares to the UK’s FTSE 100 which is down around 16.5% over the same period. 10 bourses have bucked the downturn, which is good to see some good news on some of the World Stock markets.

End of the week saw:
Stock exchanges:
FTSE 100: 3,883
DOW: 8,379
S&P: 877
Nikkei: 7,649

Currencies
UK Sterling £ to US Dollar $ 1.59129
UK Sterling £ to Euro € 1.25299
UK Sterling £ to Aus $ 2.56787
US Dollar $ to Euro € 0.787405

Commodities
Crude oil – $64.65
Gold – $736.00

Sterling plunged by almost 10 cents against the dollar to a low of $1.5270, its lowest level since August 2002, after the Office for National Statistics reported that UK GDP fell by 0.5% in the third quarter of the year. It also dropped sharply against the euro, slipping to €1.22 from €1.256 overnight, and hit a 12-year low against a broad basket of other currencies.

As recently as July the pound was trading above $2, but it has now shed more than 25% of its value against the dollar, as investors abandon the currency in anticipation that the UK will be a major casualty of the global downturn.

Analysts said that the pound was falling at its fastest rate since 1992, when the UK toppled out of the European Exchange Rate Mechanism.

“Risk-averse investors are abandoning the lame-duck pound for the lower-risk US dollar, and in particular US Treasury Bonds. The implications of this for a country so heavily reliant on its imports as the UK may be severe,” said Piers Cracknell, commercial director of Moneycorp.

Cracknell said that the cost of importing goods from the US and the far east have rocketed this week. “There is no doubt that these costs will be passed on into the high street, he warned.

Today’s decline came as stockmarkets worldwide fell sharply, driven down by growing fears of a world recession. In London the FTSE 100 fell by 9% after the GDP numbers were released. This followed turmoil in Asia where markets tumbled by over 10% overnight, as gloomy forecasts from Sony and Samsung sent their shares plunging by as much as 14%.

Amid the wild swings on the currency markets this morning the yen hit a 13-year high against the US dollar and gained 4% against the euro, bringing new pain to Japanese exporters.

The fall in sterling should give a boost to Britain’s struggling exporters, as it makes their goods cheaper abroad. But it pushes up the cost of imports at a time when retailers are already suffering as consumers cut back, and also makes a foreign holiday more expensive.

Sterling had already shed 7 cents on Wednesday after Mervyn King admitted for the first time that the UK is probably entering recession. The shock fall in GDP compounded fears that the slowdown could be deeper and longer than analysts thought.

Greenspan: I was wrong

The inquest into the global economic crisis has already begun. Yesterday Alan Greenspan admitted that mistakes were made in deregulating the financial markets.

The former Federal Reserve chairman admitted to a congressional committee that he had been “partially wrong” in his hands-off approach towards the banking industry and that the credit crunch had left him in a state of shocked disbelief.

“I have found a flaw,” said Greenspan, referring to his economic philosophy. “I don’t know how significant or permanent it is. But I have been very distressed by that fact.”

News reported by The Guardian, Graeme Wearden

Gloomy housing and manufacturing data and comments from the Chancellor about the UK’s economic woes are to blame for the pound’s decline, traders said.

Sterling hit 81.21 pence against the euro, before trading at 81.14 pence.

In later trade sterling slipped below $1.80 – the lowest since April 2006 – as lower oil prices helped the dollar.

By the end of European trade, one pound was worth $1.8011.

Sterling has fallen sharply over the past month. In mid-July, one pound bought two dollars.

The catalyst for sterling’s latest fall was downbeat data from the property and manufacturing sectors.

“All indicators seem to suggest that the economy will unavoidably slide into recession”
Lutz Karpowitz, analyst, Commerzbank

Recession fears

UK mortgage approvals fell 71% in July, the the lowest level since records began 15 years ago, according to the Bank of England.

Meanwhile, property consultants Hometrack said house prices fell for an 11th straight month in August.

Elsewhere in the economy, the manufacturing sector shrank for the fourth month in a row in August as demand fell at home and abroad.

“The current weakness of sterling accurately reflects the present situation of the British economy,” said Lutz Karpowitz, an analyst at Commerzbank.

“All indicators seem to suggest that the economy will unavoidably slide into recession.”

Gloomy Chancellor

The data adds to the wave of gloomy news about Britain’s economic health, summed up by the Chancellor at the weekend.

In an interview with the Guardian newspaper on Saturday, Alistair Darling warned that the economic downturn was likely to be deeper and could last longer than first feared.

BBC economic editor Hugh Pym said the global mood had turned against the pound in recent weeks, because of the perceived problems with the UK economy.

The chancellor’s recent comments had served as a reminder of those issues – if anyone needed reminding, our correspondent added.

The former Bank of England policymaker Professor Charles Goodhart warned that the UK’s economic recovery may not begin until 2010.

Analysts said that sterling’s fall was fuelled by pessimistic prospects at home and a downturn in the eurozone economy that could also hurt UK growth.

“It’s now just a question of which is the straw that breaks sterling’s back,” said Martin McMahon, currency strategist at Credit Suisse.

Another measure of sterling’s performance – the trade-weighted sterling average – also fell to the weakest level since October 1996.

The trade-weighted sterling average tracks the currency against the UK’s main trading partners.

News reported by The BBC